When you issue an LE, and then have several Change of Circumstances and new LE's being issued, do you have to update the Index value to the most recent value before issuing the new LE? Our lending system does not update the Index values when a new LE is issued, and the vendor tells us that updating the Index every time the LE is issued is not required. I hope they are correct. I have not seen confirmation one way or the other on this topic in the regulations. Any help would be greatly appreciated!

Are these discounted or premium rate variable rate transactions, i.e., initial rate is not the actual index + margin?.

The loans are the index plus margin, rounded to nearest 0.125%, so some are slight discount and slight premium. I guess the issue is do we have to keep up with updating the index to the most recent one, as we continue to do changed circumstances along the way? Can we live with the initial index at application until closing when we issue the CD? lately the jumps in APR have been large, say 40-55 basis points, well over the 12.5 Bp limit.

Paragraph 17(c)(2)(i)

1. Basis for estimates. Except as otherwise provided in §§ 1026.19, 1026.37, and 1026.38, disclosures may be estimated when the exact information is unknown at the time disclosures are made. Information is unknown if it is not reasonably available to the creditor at the time the disclosures are made. The “reasonably available” standard requires that the creditor, acting in good faith, exercise due diligence in obtaining information. For example, the creditor must at a minimum utilize generally accepted calculation tools, but need not invest in the most sophisticated computer program to make a particular type of calculation. The creditor normally may rely on the representations of other parties in obtaining information. For example, the creditor might look to the consumer for the time of consummation, to insurance companies for the cost of insurance, or to realtors for taxes and escrow fees. The creditor may utilize estimates in making disclosures even though the creditor knows that more precise information will be available by the point of consummation. However, new disclosures may be required under § 1026.17(f) or § 1026.19. For purposes of § 1026.17(c)(2)(i), creditors must provide the actual amounts of the information required to be disclosed under §§ 1026.37 and 1026.38, pursuant to § 1026.19(e) and (f), subject to the estimation and redisclosure rules in those provisions.

It's been a long day. Restoring my original posting, below.

If the loan has a discounted or premium rate the TILA rules regarding determining the fully indexed rate for use in the APR calculation are noted below, emphasis added.

TILA, Regulation Z, 12 CFR Part 1026 Supplement I, Official Staff Interpretations, Paragraph 17(c)(1)-10
Discounted and premium variable-rate transactions. In some variable-rate transactions, creditors may set an initial interest rate that is not determined by the index or formula used to make later interest rate adjustments. Typically, this initial rate charged to consumers is lower than the rate would be if it were calculated using the index or formula. However, in some cases the initial rate may be higher. In a discounted transaction, for example, a creditor may calculate interest rates according to a formula using the six-month Treasury bill rate plus a 2 percent margin. If the Treasury bill rate at consummation is 10 percent, the creditor may forgo the 2 percent spread and charge only 10 percent for a limited time, instead of setting an initial rate of 12 percent.

i. When creditors use an initial interest rate that is not calculated using the index or formula for later rate adjustments, the disclosures should reflect a composite annual percentage rate based on the initial rate for as long as it is charged and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation. The rate at consummation need not be used if a contract provides for a delay in the implementation of changes in an index value. For example, if the contract specifies that rate changes are based on the index value in effect 45 days before the change date, creditors may use any index value in effect during the 45 day period before consummation in calculating a composite annual percentage rate.

Docs - very true, that I why I asked whether this was a discounted or premium ARM. Rounding does not create a discounted or premium ARM.

OK - Docs deleted their post. There are slightly different rules for discounted or premium ARMs.

If rounding can't create a discount or a premium, does rounding need to be included in the early ARM disclosure?

If you round the rate then you must disclose how the rate is rounded such as to the nearest .125%.

May I use this thread to continue an ARM question...?

My FI is in the process of changing practices with ARM loans...
The initial interest rate will be tied to the index. So my FI will no longer offer a premium or a discount rate. Because of this, the margin can change after an initial LE has been delivered...

Is the margin allowed to change from the initial LE?
Or does my FI have to use the same margin from the initial LE and potentially have a premium or discount by the time the loan goes to close?

Thank you.

Unless you have entered into a rate lock agreement with the consumer, the rate is floating, so yes margins can change. Once you issue an initial CD, then an additional three business day delay is required before closing if your APR becomes inaccurate from the initial CD.

Thank you, Randy!